The Ohio state Court of Appeals recently determined that where portions of insurance policies at the center of a dispute were missing, the lower court's consideration of extrinsic evidence in determining the meaning behind ambiguous policy wording was proper. Further, the court held that aggregate limits contained in multi-year policies applied per year, rather than per policy period. The Cincinnati Ins. Co. v. ACE INA Holdings, Inc., Nos. C-060384, C-060385 (October 19, 2007).
In the case, an excess insurer sued the primary insurer after the excess was put on notice that the primary's policy limits had purportedly been exhausted in providing coverage for underlying asbestos claims alleging defective manufacture of masks. The excess alleged that the primary policy limits had not been exhausted because the claims at issue constituted multiple occurrences that occurred in multiple years and the aggregate limits of the primary's multi-year policies applied annually rather than per policy period. The matter was further complicated by the fact that portions of the primary insurer's policies were missing.
The primary insurer issued three multi-year policies to a manufacturing company that together provided coverage for a total of nine years. Portions of the various policies had been lost over the years, but the available portions of the policies showed that the limits of liability were $300,000 in the "aggregate." Under the facts of the case, if the "aggregate" were determined to be a per-policy period aggregate, the primary's potential exposure would be $600,000. However, if the "aggregate" limit were determined to be per-year, the primary's potential exposure would be $1.8 million.
In light of the missing policies, the trial and appellate courts found the undefined term “aggregate” to be ambiguous and relied on extrinsic evidence of the parties' performance and premiums paid and on "industry norms" to determine that the aggregate applied annually rather than per-policy period. The court rejected the excess insurer's claim that the primary's position had been taken in bad faith.